Europe Waiting for American Gas
April 30, 2014
by Paweł Olechnowicz, Chairman of the Board of Directors of Central Europe Energy Partners (CEEP).
“Gas taps and oil pipelines can be as deadly as tanks and rifles. We need a shield, guaranteeing security of supplies: a common energy market,” Jerzy Buzek, a Eurodeputy and a former President of the European Parliament, said recently.
His comment seems reasonable, particularly in the present geopolitical context, with Ukraine engulfed in a spiraling crisis and the talks between Russia and the West in gridlock. However, before discussing a common European energy market, we first need to secure and diversify our own energy supplies, which are the very foundation of any energy market and industry, as well as of the entire economy.
We must be aware that while the EU accounts for 17.6 percent of global natural gas consumption, its member states hold just 2.2 percent of the world’s proven reserves. This is already a glaring discrepancy, and in view of growing competition from the developing BRICS (Brazil, Russia, India, China and South Africa) economies, the supply of gas and other energy resources will become even more problematic. Currently, Russian gas accounts for 25 percent of all gas supplied to the EU, which makes Russia the bloc’s largest supplier. And while some member states do not import Russian gas at all (Britain, Sweden, Spain, and Portugal), others are entirely dependent on it (Finland, Slovakia, Lithuania, Latvia, Estonia, and Bulgaria). These discrepancies demonstrate that building a pan-European energy market will be a challenging task, albeit one that is not impossible. Central Europe Energy Partners and the Atlantic Council point to liquefied natural gas, which may be sourced from various suppliers around the world, as one possible answer to the problem. LNG is a viable alternative to natural gas supplied via pipelines, and an important building block of the EU’s energy security and diversified gas imports.
Need for new LNG sources
The 15 “old” EU countries are already enjoying the benefits of more secure and diverse gas supplies thanks to LNG terminals. Liquefied fuel is transported to Europe by ship from the Middle East, Africa and South America, with imports reaching some 60 billion cubic meters in 2012. At present, the 15 “old” EU countries operate a total of 19 regasification terminals, which is still a small number compared to Japan’s 26. More importantly though, the use of LNG imports as a way of improving gas supply diversity has been gaining wider support, and more and more EU member states (including Poland, Lithuania and Croatia) are opting to construct LNG terminals. However, the global LNG supply system remains a seller’s market. Demand for gas far outstrips supply, both in highly developed economies built around stable supplies (Japan, South Korea and Taiwan), as well as in developing countries (China and India). And so the entire world, Europe included, is in need of new LNG sources, to bring balance to the market. Here, all eyes turn to North America, and in particular to the United States and Canada. The shale boom over there has considerably expanded their available hydrocarbon reserves, including those of natural gas. Regulatory frameworks are being prepared and liquefaction terminals are being constructed.
The EU will find itself in a difficult position in the negotiations for good supply terms, especially given the powerful competition from Asian economies, which also look to American gas as a natural alternative. Therefore, the EU should insist on speeding up its negotiations with the United States over the creation of a transatlantic free trade area, which would help diversify Europe’s supply sources.
It was last year when the four nations in the Visegrad Group appealed to U.S. leaders to clear the way for faster LNG exports to Central Europe. It was emphasized that U.S. gas deliveries could greatly improve energy security and become a driver of investment and economic growth in this part of Europe, with positive side effects for the GDP of the European Union at large. Based on figures published by the European Commission, in 2012 the average price of gas consumed in the EU was four times what American industrial customers paid, and two-and-a-half times what U.S. households paid. This gap not only directly undermines the competitiveness of the European economy in global markets, but also has a major impact on the prices of goods and services used daily by millions of Europeans. Additionally, the chances are good that access to alternative gas sources, including LNG, will strengthen the negotiating power of nations that rely on Russia for gas supplied under long-term contracts. The opening of LNG terminals in Świnoujście, northern Poland (in 2014-2015) and on the island of Krk in Croatia (2017), supported by interconnectors and new pipelines along the North-South gas corridor, will enhance Central Europe’s security, flexibility and competitiveness, and provide a strong foundation for a single energy market in the region.
Golden age for America, stagnation for Europe
Enticed by the fruits of the American shale boom, large European companies have spent the last few years relocating production of fertilizers, plastics and steel to the United States, and are frank about the reason: excessive energy prices on the Old Continent. But that’s not all. In the coming years, petrochemical firms are planning to make capital investments of $95 billion in projects located in the United States. Research conducted by the Accenture consulting firm has shown that close to 60 percent of top managers do not believe that in the years to come European industry will be able to compete on costs with its rivals from North America and Asia. The EU Commissioner for Energy, Günther Oettinger, warned that if Europe did not react to the growing disparity in energy prices, in 10 years we would not be able to compete at all. The President of the European Council, Herman van Rompuy, has commented in a similar tone, emphasizing that reasonable energy prices are the key to keeping factories and jobs in Europe. He has warned that it is impossible to compete with foreign companies that pay half the European price for electricity. And Europe has already paid heavily—almost eight million manufacturing sector jobs have been lost in the EU since 2008. Therefore, it is high time that we address this question: will it take more shutdowns and redundancies for Europe to finally understand that the key to economic growth and competitive strength is affordable energy, with prices kept low by wisely tapping into indigenous resources on the one hand, and by sourcing secure, diverse supplies from abroad on the other? This is precisely what Europe stands to gain from a strong entry into the global LNG market, turning it into one of the pillars of a single EU-wide energy market.
Central Europe Energy Partners (CEEP) is an association formed by a group of Polish companies from the energy and fuel sectors that aims to facilitate integration in the energy sector in Central Europe and strengthen the position of this sector in the European Union. The association was established on May 4, 2010 in Brussels. This is the first industry-specific organization from Central Europe that has a permanent representation to the European Union. At present, CEEP has 22 members—companies and research institutions from countries including Czech Republic, Lithuania, Poland, Romania and Slovakia. In June 2014, Central Europe Energy Partners will celebrate its fourth birthday. Being the first regional association representing the Central European energy sector and its companies (coal, oil, renewables, grids, etc.), its overriding goal is to support the integration of Central Europe’s energy sector within the framework of a common EU energy and security policy.